Iceberg Research


April 13, 2016

1) The new unsecured revolving credit facility is offered at a very high 350 bps all-in. Banks have dramatically reassessed the counterparty risk of Noble after the company finally started to face the reality, recognized long overdue impairments and booked a loss of $1.7b as a result. The commodity industry is a low margin business. What ROE does Noble expect with so high financing costs?

2) Does Noble offer direct access to its main contracts fair values, the list of its counterparties, the underlying contracts, and the valuation models to its banks, and to their credit risk departments, when the company discusses its secured/unsecured facilities with them?

3) Noble recorded $465m negative operating cash flow in full year 2015. The company stressed it generated positive cash flow in the second part of the year ($580m after interest). However, Noble has not given any detail on how the short hedges that cover physical contracts helped this cash generation in Q3 and Q4. When commodities prices rebound, does Noble expect this positive cash effect to suddenly reverse and the company to record negative operating cash flow once again in 2016?

4) The 13% stake in Yancoal is still valued 28 times its market value on Noble’s balance sheet. It was 48 times the market value when we published our first report. Despite the significant and prolonged decline in the fair value of the interest, the auditor still does not apply any serious impairment test. How does Noble justify the valuation of an asset that accounts for 7% of its equity at 28 times its market price?

5) Noble has stated that its coal price projections were more conservative than “market consensus” (20% discount to the average “market consensus” price of $69 per tonne). In fact, what Noble calls market consensus is based on a very small number of brokers estimates. The reference used by commodity traders is what is called the “forward curve”. The forward curve is built on the global market’s positions, not a few brokers’ individual estimates. The coal forward curve indicates a price of $41 per tonne for 2020. How can Noble say that its projection of $55 per tonne in 2020 is conservative when it is still $14 above the market forward curve?

6) After we published our reports, Noble vigorously rejected all our arguments on Yancoal, Agri, the fair values, etc. Since then Noble has recognised the following impairments:

  • $200m for Yancoal
  • $531m for Agri
  • $1.1b for the fair values especially on the coal positions. One year ago we wrote: “Noble’s immunity to the challenges of the coal and iron ore markets is astonishing.”
  • $178m for other assets.

Noble has impaired a total of $2b, which was 35% of their equity when our first report was published. How can Noble still describe our arguments as “unfounded allegations” when the confirmation of these arguments can be found in their financial statements?

7) In August, PwC “reviewed” Noble’s fair values. Noble’s chairman, Richard Elman, commented: “I am delighted that we have received a strong validation of our processes and controls and shareholders can now be assured, as we have always known, that our balance sheet fairly reflects the value of our long term contracts.” Noble’s CEO, Mr Alireza, added “Does anyone in this room really believe that PwC are going to put their reputation on the line to rubber stamp the situation for a few hundred thousand dollars?” Six months later, Noble recognised a $1.1b impairment of the very same contracts that PwC had reviewed. How does Noble explain this? Was it a PR smoke screen?

8) Shareholders or bondholders have invested in Noble on the basis of representations made by this company and its auditor. They have lost a lot of money. It is now clear that these representations have been based on widely unrealistic assumptions. Is there a substantial risk of lawsuit against the company and its senior management?

9) The press has recently reported more problems with some of Noble’s contracts.

  • A secured claim of $104 million related to a coal offtake contract signed by Noble was turned down by the administrator of a bankrupt Indonesian coal miner (AKT).
  • Sundance Resources is likely to run out of cash soon.

How much are the accounting exposures to these projects? Should Noble issue a profit warning?

10) The Hong Kong High Court has recently ordered that Noble pays a substantial amount of money to Iceberg after an unreasonable application made by Noble was once again rejected by the Court. The futility of Noble’s claims has been remarkable. For example, Noble has defended that Yancoal was not overstated (although it was valued 48 times its market value) and that saying otherwise would be defamation. Virtually all our arguments have already been implicitly recognised by Noble, some assets are still obviously overstated, and the discovery process will give us more detailed information on Noble’s financial skeletons. How does Noble justify the cost of this legal action, widely expected to be unsuccessful, while the company is battling concerns over its liquidity and it has been ordered by the Court to pay our costs for a dismissed application? Has Noble been involved in similar legal actions in the past that were a waste of shareholder money?

11) Noble has repeatedly stressed its value at risk (VAR) was low and its risk profile was conservative. In reality, Noble‘s VAR calculation excluded a large share of the trading positions (e.g. long term exposure). Should the company stop communicating on this VAR now that it is clear that this instrument excludes part of the trading positions?

12) Last year during the AGM, Noble’s chairman, Mr Elman said: “I can say comfortably that the year has started off much better for us than the last year.” However, for both Q1 and Q2, Noble’s profitability turned out to be markedly lower than the previous year. Did Mr. Elman give incorrect information to the market on Noble’s performance?

13) How does Noble plan to finance its investment in X2 Resources?


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